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On Our Radar

Illinois House Overrides Veto to Pass Budget - Update

Illinois has a budget for the first time in more than two years, ending a standoff that threatened to downgrade the state's debt to junk status and was wreaking havoc with cities, colleges and school districts across the state.

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The state's House of Representatives, led by Democratic Speaker Michael Madigan, voted Thursday to override Republican Gov. Bruce Rauner's vetoes of revenue and spending measures the chamber passed Sunday.

The House's repudiation of the governor marked the final hurdle in enacting a budget for Illinois -- the first state in the union to have gone without a budget for more than a year since the Great Depression. Illinois entered its third fiscal year without a budget on July 1.

"The people in this chamber did not do what was easy today, but they did do what was right for the future of our state," Mr. Madigan said on the House floor following the votes.

"Today was another step in Illinois' never-ending tragic trail of tax hikes," Mr. Rauner said in a statement after the vote. "It proves how desperately we need real property tax relief and term limits."

The new budget funds a more than $36 billion spending proposal with a roughly $5 billion income tax increase. The state brings in roughly $32 billion a year.

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The plan also includes a provision that would allow Illinois to borrow billions of dollars through the sale of state bonds. Those funds would go toward paying down the $14.6 billion in unpaid bills the state has accrued since 2015.

Mr. Madigan achieved "yes" votes from 10 Republican lawmakers, many of whom represent districts with struggling universities or beleaguered state facilities reliant on state funding.

Backlash against Republicans who broke with the governor was so intense this week that House GOP lawmakers received a memo from the leader's office Wednesday instructing members on what to do if they receive abusive or threatening messages on social media.

Ahead of the House action Thursday, the Capitol was put on lockdown while a Hazmat crew investigated reports of a woman throwing an unidentified white powder into the offices of the governor and other areas.

The record-breaking impasse is the result of a political standoff between Mr. Rauner, a wealthy businessman elected in November 2014 on a promise to shatter the status quo in Springfield, and Mr. Madigan, a powerful Chicago Democrat who has served as House Speaker for all but two years since 1983.

On Tuesday, the Senate granted approval to the House's budget, written primarily by Democratic Rep. Greg Harris, Mr. Madigan's top lieutenant in budget negotiations.

That same day, the governor vetoed the package that cleared the Democratic legislature. The Senate reconvened to override Mr. Rauner's rejection within the hour, sending the budget back to the House for its last hearing.

Debate at the Capitol this week has centered on the budget's revenue bill, which increases the state's personal income-tax rate from 3.75% to 4.95% and the corporate income-tax rate from 5.25% to 7%.

The roughly $5 billion generated from those tax increases funds a spending bill that includes a 5% cut to government agencies and reduces state higher education funding by 10%.

The governor preferred the income-tax increase be temporary.

"Do not push for a tax hike with no fundamental reforms. Don't do it," Mr. Rauner said at a news conference Wednesday. "This income tax hike is booby-trapped. It's got land mines all over it."

Mr. Madigan overrode the governor's veto of the tax increase Thursday with the minimum three-fifths-majority of 71 votes.

The Senate, which has a Democratic supermajority, overrode the governor's veto of the revenue measure with the minimum number of required votes Tuesday. Only one Republican member, representing Eastern Illinois University in Charleston, voted in favor of the tax increase.

Despite Thursday's progress, a budget may not be able to stave off Wall Street bond houses from downgrading the state's credit rating to junk status.

Moody's Investors Service announced Wednesday it was officially placing Illinois's rating on review for a possible downgrade, even after factoring in the House's likely override of the governor's vetoes.

"Despite the progress toward budget balance that the emerging fiscal plan embodies, the plan entails substantial implementation risk," said Moody's. "The plan... appears to lack broad bipartisan support, which may signal shortcomings in its effectiveness once implemented."

Illinois must also address its roughly $126.5 billion in unfunded pension liabilities -- an evaluation from the state based on more optimistic investment assumptions. Moody's estimates the actual pension shortfall to be roughly $250 billion.

Negotiations among lawmakers will continue in coming days. The governor, who is planning to run for re-election in 2018, is still seeking certain concessions from the legislature, including a property-tax freeze and a revamp of the state's worker compensation system.